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Sec. 297 of the cos act, 1956

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poonam verma

Company Secretary

191 Points Joined January 2008

Hi frens

I have a query regarding Sec. 297 of the Cos Act.

My Co. (public ltd.) wants to enter into a contract for purchase of some products from our another Group Company(Pvt. Ltd.) in which our MD is a Director. Paid up Cap. of my Co. is more than Rs. 5 Cr. so if we look at the sec. than we need to take prior approval of CG and pass the BR.

But if we make this transaction for cash/cheque at the market price of the product at which our Group Co. is selling the products to other Customers, than also do we need to take the approval of CG by filing F-24A ?or we can take advantage of exception to Sec. i.e. sec.297(2)(a).

Pls clarify whether CG approval is required or not. If not required what requirements should be complied with.

Thanks in advace

Poonam

Replies (1)

Arunabha Acharya

Assistant Manager - Legal & Secretarial

76 Points Joined December 2008

Section 297(2)(a) is clear about it that if the transactions take place in the prevailing market price, then approval of Central Government isn't required. It also seems from this situation that this is an Arm's Length Transaction, wherein no price discrimination is taking place.

Thus, in my view, you don't require CG's approval for it. However, as a safety precaution, have the transaction approved in the Board Meeting. Back-up this resolution by availing price quotations given by the Group Company to third parties.